• • • DATA CENTRE MANAGEMENT • • •
The hidden costs of trade wars for
the data centre industry By Jae Ro, Marketing Manager at SIGNAL + POWER
rade wars and tariffs are reshaping global supply chains, creating uncertainty as the data centre industry braces for serious repercussions. As the demand for data centres continues to surge fuelled by cloud computing and artificial intelligence (AI), the tariffs are threatening to slow down progress. The U.S. administration’s tariff of up to 245 per cent on Chinese materials, combined with China’s retaliatory export restrictions on rare earth elements (REEs), will disrupt supply chains and inflate costs. These challenges are particularly concerning given the industry’s reliance on rare earths, key components in cooling systems, power distribution units and server hardware. With China producing 90 per cent of the global supply, the industry faces an acute vulnerability to supply chain instability.
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Rising costs Tariffs on critical materials like steel and aluminium, currently at 25 per cent, will push construction and operating costs higher. CBRE estimates President Trump’s tariffs could raise construction costs by 3 per cent to 5 per cent.
10 ELECTRICAL ENGINEERING • JUNE 2025
Components such as cooling systems and power distribution units, often reliant on globally sourced materials, are among the hardest hit. UPS systems, for instance, depend heavily on imported components like lithium-ion batteries and power semiconductors. Even domestic assembly processes are affected, as many raw materials originate from countries subject to trade restrictions. The resulting price hikes will likely be passed on to maintain profit margins. The full impact on how tariffs impact data centre hardware costs will not be known until exemptions and how goods are classified become clearer. Semiconductors are exempt for now but that could change. Printed circuit board assemblies have a 25 per cent US tariff but two-layer and four-layer boards have exemptions until May 31, 2025. While hyperscale data centres may leverage higher levels of domestic sourcing, Schneider Electric notes that 83 per cent of its North American production costs are domestic, the transition to source materials locally or onshoring of critical manufacturing will take years. In the short-term, higher construction and hardware costs are unavoidable.
Supply chain instability China’s retaliatory measures, such as restricting rare earth exports and targeting U.S. firms with antitrust probes, have further destabilised supply chains. Rare earth materials, which are vital for power systems, cooling infrastructure and storage hardware, are particularly challenging to replace, creating bottlenecks in production and delays in project timelines.
Switchgear and transformers, crucial components for data centres, are also affected. High-power transformers, for example, rely on imports for approximately 80 per cent of their components, with Mexico, Canada and South Korea as primary trade partners. Circuit breakers, which account for about 30 per cent of the cost of switchgear, also have a significant import reliance. While domestic assembly is common, imported parts like magnetic components and relays are subject to higher costs under current tariffs, further increasing challenges for data centre operators striving to meet deadlines.
China dominates the global supply of critical materials used in electronics and semiconductors.
electricalengineeringmagazine.co.uk
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